We are very close to paying off my remaining student loan, which would leave us with the mortgage as our only debt. For some reason, I had assumed until today that we would shift what we’ve been paying on the student loan into savings for retirement and the kids’ education. It had simply never occurred to me to wonder how long it would take to pay off the mortgage if we continued the debt snowball.

Until today.

Out of nowhere, I began to wonder would happen if we applied the student loan payment to our mortgage. I was shocked to see that we could pay off our mortgage in just over six years.

So that’s the new plan: Pay off the mortage by mid-2015. We’ll save over $100,000 in interest. I was a little concerned that with our new plan, refinancing in January may have cost us money, but I’m happy to report that we’ll come out ahead by $5,000 (i.e., if we hadn’t refinanced and started accelerating the mortgage in a few months, we’d have paid $5,000 more than we will now).

Of course, nothing is set in stone. The new plan presupposes that we’ll be sending the boys to public elementary school or a very affordable private school, and that my husband and I will hold on to our jobs. With the current state of the economy, I don’t want to take anything for granted. But even with the extra principal payment each month, we’ll still be able to save, as we have done while paying off our non-mortgage debts, so we will remain financially stable.

I tweeted about this on Wednesday night, but wanted to mention it here as well. Dinner that night was spaghetti carbonara, which I made with whole wheat spaghetti, cheese and eggs. (I’ll publish the recipe next week.) Our older son actually ate it. And he didn’t just eat it, he loved it. We did have to persuade him to try it in the first place, but my husband and I are jointly sticking with our plan to raise healthy eaters. So far, so good! (Although I must admit that I couldn’t get the younger boy to even take a bite of the pasta.)

Almost every day, JLP at All Financial Matters posts about how financially responsible citizens are going to be stuck subsidizing our financially irresponsible brethren (like this post on Wednesday), and I have to agree that it’s infuriating. I just heard about a friend of a friend who works for a large law firm and has a $6,000 monthly mortgage payment. My jaw dropped. I didn’t realize that it’s even possible to have a mortgage that big.

I’m guessing that the mortgage must be in the million-dollar range, and the rough description and location I was given match that price. I would guess that this attorney’s income is about $250,000 per year. To the best of my knowledge, the attorney is single and lives alone, so there’s no one else helping to pay the bills, nor is there another source of income or other assets (e.g., a family trust). If the attorney were fired – and it’s not exactly improbable given all of the layoffs happening at firms lately – the house would most likely go into foreclosure.

I just don’t understand how anyone could think – even in overpriced LA – that a $6,000 per month mortgage is a good idea. A good-sized condo in a nice area can be rented for $2,000 per month or purchased for $500,000. Even a small house could be purchased for $500,000. Granted, life at a large firm is so miserable, spending money is often the only way to make it tolerable – but in that case, I would say get a $3,000 mortgage, blow $1,000, and bank the other $2,000 for the day you can’t take the large firm lifestyle any longer. People are just crazy.

We finally signed the closing documents for the refinance on our mortgage yesterday. After fees, the math works out to an APR of just over 5%, and of course, APR is what really matters when it comes to figuring out our savings. We plan on staying in our house forever, and to continue paying the same amount that we do now, so the benefits of our refi will be substantial. We’ll save over $30,000 in interest and pay off our mortgage in 2031, two years earlier than our current payoff date in 2033.

It must be awful for the escrow company’s notary to have an attorney come in to sign closing documents. I read every sheet of paper and questioned multiple figures. I also questioned a couple of whole documents, including one that was completely irrelevant that we didn’t have to sign. It was an IRS form permitting the mortgage company to obtain copies of our tax returns – the form itself said something like “If completing form for a third party, do not sign if Lines 6 and 9 are blank” and of course, Lines 6 and 9 were blank. The notary had to call the lender, who said, “Oops, they don’t need to sign that.” I’d like to think nothing bad would have happened even if we’d signed it without reading it, but I hate to think of all the people who have given lenders permission to obtain their tax returns when it wasn’t necessary.

Finally, while we plan on paying extra on the principal every month, I must admit that a tiny part of me is glad to have the reduced monthly payment – just in case something bad happens and suddenly that $200 monthly difference becomes significant.

The best explanation I could find was this About.com article, which states that rates are based solely on Mortgage Bonds or Mortgage Backed Securities, and therefore are slower to react to rate cuts than other financial sectors. I still don’t understand why mortgage rates go up when the trend should be down, though.

Are rates going to stay where they are or maybe even go higher? I hope not. I’m being cautiously optimistic that rates will go down again because the Fed is still buying mortgages. And we still have some time.

We’ll be re-financing at 5.125% or lower. Thanks to some special programs that we’re eligible for, we got a low rate with a 60-day lock and two float downs, so if rates go down between now and when we close, we’ll be able to get that lower rate. The loan officer said she thinks rates will go down in the next few weeks, so I took her advice and took the 60-day lock at 5.125% instead of a 30-day lock at 5% with no float down.

Calculating whether the refi would be worthwhile involved enough numbers to make my head spin, but the loan officer ran the numbers with me a second time and confirmed my conclusion. A key factor in making the refi worthwhile is our commitment to continuing to make our current monthly payment even though the minimum payment will be lower with the new loan.

Here’s an example of the math (I’m using round numbers for the sake of privacy and convenience – and remember, if the balances seem high, they’re normal or even on the low side for Southern California):

Current mortgageCurrent balance: $230,000Current interest rate: 5.75%Current monthly payment: $1460Interest paid to date: $78,300Interest that would be paid over life of the loan: $275,215

New mortgageBalance including closing costs: $235,000New interest rate: 5% (I’m gambling that it will go down at least this much)Interest paid over the life of the loan making the same monthly payment as above: $175,740Total interest paid on this loan plus interest paid on previous loan: $254,040

Difference in interest paid between the two loans: $275,215 – $254,040 = $21,175

So that’s a savings of $21,175 in this example, and the loan will be paid off in 25 years instead of 30. In our case, the numbers work out to a savings of about $30,000 over the next 22 years, and we’ll still pay the mortgage off two to three years before our current mortgage (assuming no extra principal payments).

Of course, we can always increase our savings by paying more extra principal each month, and it’s likely we’ll do that. Still, I can’t help but wish the savings were greater (and they may be if the mortgage rate goes down further before we close). But in any event, for just a few hours’ investment, we’ll have saved ourselves $30,000.